NZD/USD (New Zealand Dollar/U.S. Dollar)

DEFINITION of 'NZD/USD (New Zealand Dollar/U.S. Dollar) '

The NZD is the abbreviation for the New Zealand dollar and U.S. dollar (NZD/USD) currency pair or cross. The currency pair tells the reader how many U.S. dollars (the quote currency) are needed to purchase one New Zealand dollar (the base currency).

Trading the NZD/USD currency pair is also known as trading the "Kiwi."

BREAKING DOWN 'NZD/USD (New Zealand Dollar/U.S. Dollar) '

The value of the NZD/USD pair is quoted as 1 New Zealand dollar per X U.S. dollars. For example, if the pair is trading at 1.50, it means that it takes 1.5 U.S. dollars to buy 1 New Zealand dollar.

The NZD/USD is affected by factors that influence the value of the New Zealand dollar and/or the U.S. dollar in relation to each other and other currencies. For this reason, the interest rate differential between the Reserve Bank of New Zealand (RBNZ) and the Federal Reserve (Fed) will affect the value of these currencies when compared to each other. When the Fed intervenes in open market activities to make the U.S. dollar stronger, for example, the value of the NZD/USD cross could decline, due to a strengthening of the U.S. dollar when compared to the New Zealand dollar.

The New Zealand dollar is considered a carry trade currency in that it is a relatively high yielding currency so investors will often buy the NZD and fund it with a lower yielding currency such as the Japanese yen or the Swiss franc. Evidence of this was prevalent during the financial crisis when the NZD fell close to 50% against the Japanese yen during the Great Recession. As volatility rose, investors unwound these carry trades, and the NZD was one of many high yielding currencies that fell during 2008 and 2009.

Other factors affecting the NZD are dairy prices and tourism numbers. New Zealand is the worlds biggest exporter of whole milk powder, meaning if milk prices are on the rise the New Zealand economy is likely to be doing well, which will push up the currency. Tourism is another staple of the New Zealand economy, so as numbers to New Zealand rise, the economy does well and the currency appreciates.

The NZD/USD tends to have a positive correlation to its neighbor, the Australian dollar (AUD/USD).